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Seventh Circuit: Unsolicited Fax Does Not Trigger Duty to Defend as ‘Advertising Injury’
Insurance Law Update
Seventh Circuit Court of Appeals
The Seventh Circuit Court of Appeals held that an unsolicited fax advertisement in violation of the Telephone Consumer Protection Act (TCPA) does not establish a duty to defend under “advertising injury” coverage provisions.
In Auto-Owners Ins. Co. v. Websolv Computing, Inc., ___ F.3d ___, 2009 WL 2750263, (7th Cir. (Ill.) Sept. 1, 2009), the insured was sued for sending an unsolicited fax advertisement in violation of the TCPA. The commercial general liability insurer accepted the defense under a reservation of rights, but filed a declaratory judgment action in Illinois federal court to determine its defense obligation. In the declaratory action, the parties stipulated to application of Iowa law and filed cross-motions for summary judgment. Applying Illinois law instead, the district court granted the insured’s motion for summary judgment. Relying on the Illinois Supreme Court’s opinion in Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (Ill. 2006), which held that similar “advertising injury” language covered TCPA claims, the district court held that the insurer had a duty to defend the TCPA lawsuit.
On appeal, the Seventh Circuit reversed and held that the district court erred in applying Illinois law. Applying Illinois’ “most significant contacts” test, the court found that Iowa law was applicable since the risk was located in Iowa and the policy was delivered to the insured in Iowa through an Iowa agency.
With respect to coverage, the Seventh Circuit held that there was no duty to defend the TCPA claims under Iowa law. It dismissed the argument that the offending fax was covered as “property damage,” because the consumption of ink and paper was expected and intended by the insured. It also concluded that an Iowa court would be more likely to adopt the Seventh Circuit’s decision in American States Insurance Co. v. Capital Associates of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004), than the Illinois Supreme Court’s decision in Valley Forge, and thus would find that the “advertising injury” provision did not cover TCPA claims. The Seventh Circuit examined the definition of “advertising injury,” which included injury arising out of “[o]ral or written publication of material that violates a person’s right of privacy[.]” In the absence of a policy definition of the “right of privacy,” the Seventh Circuit identified the two broad categories of privacy rights under common law—rights involving secrecy interests and rights involving seclusion interests—and observed that the claimant alleged only that the fax intruded on the right to be left alone. Thus, the court concluded that the underlying suit implicated seclusion interests only.
The Seventh Circuit concluded that the alleged infringement of seclusion interests did not fall within “advertising injury” coverage. First, the Seventh Circuit reasoned that because a business does not generally enjoy a right to seclusion, it was unlikely that a provision concerning the “right of privacy” in a corporate insurance policy was intended to cover seclusion interests. Second, the court found that the use of the word “publication” narrowed the scope of the “right of privacy” in the definition of “advertising injury.” In particular, “publication” implicates secrecy interests, but not the right to seclusion. The court observed that violations of the right to seclusion, including TCPA violations, can occur irrespective of publication, but the “advertising injury” provisions focus on harm arising from the content of the advertisement rather than from the mere receipt of an advertisement.
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